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Several years ago it appeared that much of the rail equipment needed for coal service would no longer be needed due to project- ed coal plant retirements. Now it appears that much of the equipment and manpow- er that would have been used serving coal- fired power plants has found a new home in the oil shale business. Rapidly growing oil tanker traffic is now competing for the same track usage as coal traffic, and many coal destinations are feeling it. In the last two years, the number of tanker cars on BNSF has increased 30%, while those on Union Pacific (UP) have increased 21%. It is very likely people are witnessing a rail business in transition. On March 13, the Western Coal Traffic League (WCTL) filed a letter of concern with the Surface Transportation Board (STB) entitled "BNSF Railway Service Crisis." Its member utilities were express- ing their concern that BNSF's poor service was leading to precariously low coal stock- piles, while BNSF frustrated their attempts to get specific answers. Cloud Peak Energy reported in their fourth quarter report of 2013, "Demurrage costs were unusually high in the fourth quarter as rail interrup- tions slowed deliveries to Westshore, caus- ing delays in loading vessels." They reported that the problem, though dimin- ished, still existed in mid-2014. The service problems were not restrict- ed to the coal industry. On June 20, the STB directed Canadian Pacific (CP) and BNSF to report their plans to timely resolve their backlogs of grain car orders, as well as respective weekly status reports pertaining to grain car service. How might this service concern be related to coal transportation service problems? What was happening in the rail ser- vice business? Should there not be more locomotive power available now to serve the coal and grain businesses? The winter of 2013-2014 was exceptionally long; heavy snowfalls had caused delivery problems for the railroads, but were they the only reason for poor service? Could it be that the western railroads were focus- ing on the oil shale business to make up for the coal business they expected to continue losing? In oil-starved California, two new oil- by-train terminals have been announced that would provide new capacity of 220,000 barrels per day in Bakersfield. In Oregon and Washington, BNSF serves five existing refineries and plans another four oil-by-rail facilities. As many as 19 BNSF unit trains of Bakken crude now traverse the state of Washington weekly. During the same period that coal and grain shipments were declining, BNSF's Bakken crude oil shipments and related investments were rapidly growing. A legit- imate concern for coal-fired utilities is whether some rail assets normally used for coal transportation had been reassigned to develop the new Bakken crude busi- ness. Certainly the liquids would not use the same cars as coal, but could the coal train locomotives and crews be used to pull a unit train of crude oil? New traffic on the rails will not be all crude oil. In 2013, UP hauled almost 200,000 carloads of frac sand, compared to 159,000 carloads in 2012. BNSF hauled 140,000 carloads of frac sand, up from 122,000 carloads in 2012. This business will never be lost to pipelines. Since 2004, the STB chairman has annually requested the railroad industry to explain its plans to handle increased traffic volumes associated with the tradi- tional fall "peak shipping season." His cur- rent request for fall 2014 information must have been shaped by such service con- cerns as those expressed above. Coal transportation answers to the chairman's request are summarized below for each of the four major coal-hauling railroads. UP: Coal Customers Want to Ship More Than Planned In December 2013, UP reported coal inventories were well below historic levels, and were down 31% from 2012. Power plant coal inventories fell further when prolonged extreme cold hit much of the U.S. last winter, increasing demand for electricity. Moreover, higher natural gas prices contributed to greater demand for coal-fired electricity generation. Through August 30, UP's coal car loadings were up 2% compared to 2013. While the summer saw below-average temperatures for much of the country, utility stockpiles were still down more than 20% from their five-year averages. Accordingly, UP anticipates steady demand from utilities as they replenish and build coal stockpiles for the coming winter. Responding to the demand for coal- fired generation, UP's coal customers desired to ship much more coal in 2014 than they told UP to plan for last year. The railroad responded by activating its surge resources, acquiring more locomotives, and hiring more employees. They added coal train sets and increased train size where they could, so that its customers were receiving more coal. UP is closely monitoring its deliveries and maintaining 22 www.coalage.com November 2014 t r a n s p o r t t i p s Rail Service: A Business in Transition B Y D A V E G A M B R E L STB Annual Report of Tank Cars, Y/E December 28, 2013 Note: Percentage increase in grand total is based on 12/31/11 numbers. "During the same period that coal and grain shipments were declining, BNSF's Bakken crude oil shipments and related investments were rapidly growing. A legitimate concern for coal-fired utilities is whether some rail assets normally used for coal transportation had been reassigned to developing the new Bakken crude business."